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LIVE MARKETS- While Netflix soared, some only saw bubbles

Thu 21st January, 2021 4:12pm
* S&P, Dow creep higher; Nasdaq up ~0.5% * Cons disc biggest S&P 500 sector gainer; energy down most * Euro STOXX 600 ~flat; ECB keeps stimulus unchanged * Dollar falls; gold, oil down * US 10-Year Treasury yield ~1.10% Jan 21 - Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at WHILE NETFLIX SOARED, SOME ONLY SAW BUBBLES (1110 EST/1610 GMT) Netflix NFLX.O shares added almost 17% on Wednesday after the projecting late Tuesday it will no longer need to borrow billions of dollars to support day to day operations, and it floated the possibility of share buybacks.*:nL4N2JU3UF But Michael O'Rourke, chief market strategist at JonesTrading, citing slowing growth and a high valuation, couldn't have sounded less impressed. "We can’t help but to view the results and the market reaction as the embodiment of this market bubble," wrote O'Rourke. "There are countless examples of profitless companies reaching stratospheric valuations and speculative issues making moonshot moves." To be sure, Netflix is different as a mega-cap and a member of the market leadership club which has driven the biggest gains of the bull market over the past decade, O'Rourke said. But he says he was "still astounded at the level of inspiration Netflix provided to the FANG/FAAMG complex." He was referring to gains in shares of Facebook FB.O , Apple AAPL.O and Google's parent Alphabet GOOGL.O along with Netflix. FAAMG includes AMZN.O and Microsoft MSFT.O , which also rose. While the moves suggested hopes that mega-cap earnings would come in strong, O'Rourke noted that Netflix missed earnings estimates and barely met revenue estimates. With 5 FAAMG names adding somewhere approaching $300 billion in market cap on Wednesday, they represent 22% of the S&P 500 and trade at 38 times this year's earnings estimates, according to O'Rourke. Add Netflix and Tesla TSLA.O and the index weighting of these issues is 26% and the P/E rises to 70.*:nL8N2JW3GL Just as in early 2000, the trading in mega caps "has become as insane as that of the speculative dreck." Netflix is down ~1% on Thursday. (Sinéad Carew, Thyagaraju Adinarayan) ***** DATA WITH A 'K': JOBLESS CLAIMS, HOUSING STARTS, PHILLY FED (1010 EST/1510 GMT) A dismal jobless claims report stood in sharp relief against upbeat housing and manufacturing data released on Thursday, further evidence of a bifurcated, K-shaped economic recovery. The number of U.S. workers filing first-time applications for unemployment benefits USJOB=ECI eased to 900,000 last week, according to the Labor Department, a hair below the 910,000 consensus.*:nL1N2JV2DJ Lest we jump for joy, the number remains shockingly high - new jobless claims have been worse than the darkest week of the Great Recession for the better part of a year - and suggests the pandemic continues to cause ongoing, and possibly lasting damage to the U.S. jobs market. "The labor market continues to face near term challenges, in particular the contact-facing service sector," writes Rubeela Farooqi, chief U.S. economist at High Frequency Economics. "Conditions are unlikely to improve until infections can be curbed, and the economy can reopen more completely." Continuing claims USJOBN=ECI , reported on a one-week lag, fell to 5.045 million, 346,000 fewer than analysts expected. The housing market, as per usual, delivered some of the day's best economic news courtesy of the Commerce Department. Groundbreaking on new homes USHST=ECI jumped by 5.8% to 1.669 million units on a seasonally adjusted annualized basis (SAAR) in December, building on the prior month's upwardly revised 3.1% gain.*:nL1N2JV2C5 Building permits USBPE=ECI - perhaps the most forward-looking housing indicator - increased by 4.5% to 1.709 million units SAAR, a slight deceleration from November, but better than analysts expected. While permits are at their highest level since the housing bubble, the slight loss of momentum jibes with Wednesday's report from the National Association of Home Builders, which showed sentiment in the sector fading slightly as tight supply threatens to push prices beyond affordability. Affordability remains a dark cloud on the housing market's otherwise blue skies, as spiking demand has sent inventories to record lows. Still, the supply drought should support homebuilding activity in the coming months. "We still expect recovering demand, low mortgage rates and a shortage of supply to support a healthy rate of new home construction, and the risk may be for further upside surprises," says Nancy Vanden Houten, lead U.S. economist at Oxford Economics (OE). Finally, mid-Atlantic manufacturing activity expanded this month at a faster pace than analysts expected. The Philadelphia Federal Reserve's business index USPFDB=ECI increased to a reading of 26.5 from December's 9.1, a much healthier number than the even 12 forecast by economists, and indicating the fastest increase of manufacturing since the onset of the pandemic. "Shipments strengthened, new orders bounced back after ending 2020 with a downbeat reading, and hiring stayed on a positive track," says Oren Klachkin, lead U.S. economist at OE. "The Biden administration's American Rescue Plan will carry the economy through the soft patch that's developed at the start of the year and bolster the recovery over the course of 2021." The number stands in contrast with the NY Fed's Empire State index released on Friday, which showed a deceleration in New York to a languid 3.5. A Philly Fed/Empire State number above zero signifies increased activity from the previous month. Markets wobbled out of the starting gate in morning trading, struggling to build on Wednesday's record closing highs. (Stephen Culp) ***** GROWTH CLAWS BACK SOME LOST GROUND VS VALUE (0900 EST/1400 GMT) From early September into late last week, U.S. growth stocks were beaten up on a relative basis vs U.S. value stocks.*:nL1N2IA18C That said, the S&P 500 growth index .IGX / S&P 500 value index .IVX ratio has reached what can be considered an implied support zone on the charts. So far, it is reacting positively. The ratio is on track for its biggest weekly rise in more than 2 months as growth stocks claw back some lost ground: Of note, from late spring to late summer last year, the growth/ value ratio struggled to sustain strength more than 18%-22% above its 200-day moving average (DMA). This zone had marked the two highest disparity peaks in the ratio over the past two decades. After a short-lived thrust to a high of 23.5% above the long-term moving average in early September, the ratio collapsed and closed below the 200-DMA on January 6, as well as a number of times last week. Last Thursday's disparity trough was a little more than 2% below the 200-DMA. Since the ratio's major turn in favor of growth in 2007, its 200-day disparity has roughly bottomed around parity. Growth/value's two deepest violations, in early 2013 and late 2016, were just a little more than 5% below the 200-DMA. The sudden turn back in favor of growth is coming with renewed relative strength in stay-at-home stocks, and FAANG names .NYFANG . This while recent darlings, including energy .SPNY , and financials .SPSY stumble.*:nL1N2JV2RW If the ratio's 200-DMA disparity were to fall much below 93%, however, the potential then could be for a collapse to the 2001 low around 76%. Although, disparity bottomed at that point, the extent of the relative damage to growth was so severe it still took the ratio years to find an ultimate low. (Terence Gabriel) ***** FOR THURSDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EST/1400 GMT - CLICK HERE:*:nL1N2JW16X <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ GVV01212021 Jobless claims Housing starts Philly Fed ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Terence Gabriel is a Reuters market analyst. The views expressed are his own)
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